This study posits that managerial power affects the choice of performance targets. With a sample of 220 UK-listed firms that adopted performance-based stock option plans during 1997-2004, the results reveal that powerful CEOs have significant discretion in target setting, such that firms led by powerful CEOs attach less challenging performance targets to option vesting. These results provide new evidence that CEOs exert their power and influence on the design of executive compensation.
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Finance
The influence of managerial power on the choice of performance targets in incentive contracts
